The FTSE 100 shook off a lacklustre start on Wall Street to rise more than 6pc
in early afternoon trading.

Wall Street opened lower - a day after a huge bargain-hunting rally led the Dow Jones to its second-best day on record - as investors awaited a likely interest rate cut from the Federal Reserve later today.

The Dow fell 98.6 points in early trading before rising 92.5 and then falling back, while in London the FTSE 100 index of leading shares was up more than 265 points - or 6.7pc - to 4191.58.

Analysts said the market had been overdue for a rally after huge losses amid the worst financial turmoil since the 1930s Great Depression, with investors hoping the Fed will announce an aggressive rate cut at the end of a two-day policy meeting.

In Germany, a 40pc fall in Volkswagen shares to €607 pulled the Dax was down around 0.5pc. Shares in the carmaker have risen from €210 on Friday to €945 yesterday, briefly making it the world's biggest company ahead of Exxon Mobil, after Porsche disclosed it had secured 74pc of the equity.The CAC index in France rose 6.7pc to 3323.5.

Overnight, the Dow jumped 889.35 points, or 10.9pc, to 9065.12. Amid dramatic scenes on the floor of the New York Stock Exchange, the majority of the gains were made in the final 90 minutes of trading.

Talk of interest rate cuts in the US and Japan saw the Nikkei close up 7.7pc. However, trading in other Asian markets was volatile, with the Hang Seng rising 5pc, then falling 3pc, before closing up 0.8pc at 12,702. South Korea fell 3pc to 968.

David Buik of BGC Partners described the movement in the markets as “madness”.

“What happened yesterday, in my opinion, is that we had no redemptions, no hedge fund selling in New York, and there was also talk of interest rates cuts in Japan. It was a hysterical rally based on nothing

“I would be immensely cynical about this. We are going to see very volatile times. We have to remember that the only asset that is liquid at the moment is equities. If you can't sell your property, borrow money or sell commercial paper, what can you do –- you can just sell equities.That’s why we’ve seen these equities crash below sensible levels of valuation. It will take time to iron out."

The bear-market bounce – following on from positive days of trading across Europe and Asia – came despite disappointing economic data showing American consumer confidence falling to an all-time low and urban house prices falling at the fastest rate on record.

But such dismal economic readings failed to quell investors, as seen in the American markets, where the S&P500 index, like the Dow, recorded its second-biggest points gain on record, closing up 91.59 at 940.51.

Much of the uplift came as a result of the widely-held belief that the US Federal Reserve will today cut interest rates by as much as 75 basis points – leaving them at just 0.75pc – on top of speculation that the Bank of Japan may also cut rates for the first time since March 2001.

The speculation pushed the yen sharply lower, causing its biggest one-day fall against the dollar since 1974 and its biggest decline ever against the euro. It reverses many of the record gains made by the Japanese currency in recent weeks.

Japanese rates are currently 0.5pc, but newspaper Nikkei reported that they may be cut by a quarter percentage point.

The European Central Bank is also under pressure to cut rates on or before its next meeting, scheduled for November 6, while the Bank of England is widely expected to reduce UK borrowing costs by at least half a percentage point early next month.